Fuel Legislation Amendment (Grant and Rebate Schemes) Bill 2001

WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.

The Diesel Fuel Rebate Scheme and the Diesel and
Alternative Fuel Grants Scheme are schemes whereby the Commonwealth
subsidises the use of diesel and certain other fuels used
principally by businesses but also by certain other users.

The Diesel Fuel Rebate Scheme (DFRS) provides a
rebate of the excise paid on diesel used in specified activities.
Since 1 July 2000, the use of diesel (and like fuels) in the
following activities has been eligible for rebate subject to
certain exemptions:

mining operations (use of any vehicle on a public road is not
eligible)

primary production, being forestry, agriculture and fishing
(use of a road vehicle on a public road is not eligible)

at residential premises to generate electricity in the
provision of normal domestic services

at hospitals, nursing homes, homes for the aged and any other
institution providing medical or nursing care

rail transport (otherwise than for the purpose of propelling a
road vehicle on a public road) in the course of carrying on an
enterprise, and

marine transport (otherwise than for the purpose of propelling
a road vehicle on a public road) in the course of carrying on an
enterprise.

Rebate rates are adjusted to take account of
movements in the consumer price index. The amount of rebate paid is
based on an average of the rates applying in the six months before
the claim for rebate is lodged. The rate of rebate depends on the
rate of excise. For example, in September 2001, the rebate for
'diesel and like fuels' subject to excise of $0.38143 per litre was
also $0.38143 per litre, whereas the rebate for 'like fuels' that
attract the lower rate of excise duty was $0.07557 per litre.

The legislative authority for the DFRS is
section 78A of the Excise Act 1901, section 164 of the
Customs Act 1901, and the regulations under those
Acts.

Under the Diesel and Alternative Fuels Grants
Scheme (DAFGS), the Commonwealth government pays grants for the
business-related on-road use of diesel (and like and alternative
fuels) in all vehicles over 20 tonnes gross vehicle mass (GVM), and
in vehicles weighing between 4.5 and 20 tonnes GVM operating in
regional areas.(1) The grant from 1 February 2001 was
18.510 cents per litre. The grant reduces the 'effective' diesel
excise to around 20 cents a litre for business users operating in
regional areas. In contrast, businesses making non-eligible
journeys in metropolitan areas pay the full amount of excise of
around 38 cents.

The Scheme's origins lie in the Government's
proposals for the taxation of diesel contained in A New Tax
System (ANTS). Under ANTS, the Government proposed to reduce
the tax on diesel. This proposal had two elements:

a reduction (of about seven cents) in the amount of excise to
36 cents per litre, and

a 'GST credit' equal to 'around half the excise paid on the
diesel'.(2)

The effect of these two elements would have been
to reduce the 'effective' rate of excise on diesel from 43 cents to
18 cents per litre. The proposal would apply to vehicles weighing
over 3.5 tonnes and to railways. Vehicles weighing less than 3.5
tonnes would receive a GST credit 'equal to the GST paid' on the
diesel they used.

The refusal of the Senate to pass the ANTS
legislation led to the agreement-announced on 28 May 1999-between
the Government and the Australian Democrats, which modified the
ANTS proposal in a number of important respects. In particular, the
Government converted the proposed diesel fuel credit scheme into
the DAFGS.

Section 4 of the DAFGS Act states the
Government's intention to replace both the DAFGS and the DFRS with
an Energy Grants (Credits) Scheme (EGCS) to start on 1 July 2002 or
earlier. In particular, subsection 4(2) states:

The purpose of the Energy Grants (Credits)
Scheme will be to provide active encouragement for the move to the
use of cleaner fuels by measures additional to those under this
Act, while at the same time maintaining entitlements that are
equivalent to those under this Act and the Diesel Fuel Rebate
Scheme, including for the use of alternative fuels.

On 8 July 2001, the Government announced an
inquiry into the taxation of fuels.(3) The inquiry will
examine, among other things, the proposed EGCS. The inquiry is to
report in March 2002. If the Government were to proceed as
originally intended, only three months would elapse between the
fuel taxation inquiry's reporting deadline and the implementation
of the EGCS. Given that the taxation of fuel and the EGCS are very
complex issues, the three month period would, in all likelihood,
have been too short to allow the government to consider the
inquiry's report and formulate its response, let alone make any
changes to the legislation for the EGCS. The proposed amendments in
the Bill will provide 'breathing space' for the Government to
consider the inquiry's recommendations, formulate its policy
response, and draft legislation to give effect to that policy.

With the deadline for implementing the EGCS
approaching, the recipients of the rebates and grants have been
pressing for details of the EGCS. For example, the Australian
Trucking Association, whose members receive grants under the DAFGS,
has been campaigning to ensure that the Government adheres to its
undertaking to maintain entitlements. The Association has also been
pressing all political parties to state their
positions.(4)

The Labor Party has promised to extend the DAFGS
for 12 months from June 2002. Labor also pledged that the energy
credit scheme and arrangements would maintain the equivalent
benefits to the trucking industry available under the
DAFGS.(5)

In May 2001, Australian Democrats Senator, Lyn
Allison, issued a draft discussion paper on the EGCS, which
examines a range of options for the proposed scheme. On 8 July
2001, Senator Allison noted that the reporting date of the fuel
taxation inquiry gave little time before the start of the
EGCS.(6)

Proposed sections 1-3 and 7
change the dates in the relevant Acts to ensure that the new start
date for the EGCS becomes 1 July 2003. For example, section 78A of
the Excise Act 1901 is the legislative authority for the
DFRS. Proposed section 7 would change section 78A
so that the new start date for the EGCS is 1 July 2003.
Proposed section4 changes the
deadline for making a claim under the DAFGS from 1 December 2002 to
1 December 2003. Proposed sections5 and 6 change the dates for
disqualification for fraud of the DAFGS from 30 June 2002 to 30
June 2003.

Proposed section 8 adds a
definition of 'electronic signature' to the terms used in the DAFGS
Act.

Proposed sections 9 to
12 seek to ensure that all fuel used in emergency
vehicles with a GVM of 4.5 tonnes or more, and in auxiliary
equipment that such vehicles carry or use, is eligible for
grant.

Proposed section 9 adds subsection 5(2) to
DAFGS Act. This extends the definition of fuel used in emergency
vehicles to include fuel used in auxiliary equipment that the
vehicle carries or uses. This has the effect of ensuring that fuel
used in auxiliary equipment becomes eligible for grant.

Existing section 9 of the DAFGS Act relates to vehicles
weighing 20 tonnes or more. It requires, among other things, that
such vehicles be used in an 'enterprise' and on a 'public road'.
Proposed section 10 makes emergency vehicles
exempt from existing section 9

Currently, for fuel used in an emergency vehicle to be eligible
for grant, the vehicle must have travelled on a public road.
Proposed section 12 deletes the public road
requirement.

The remaining proposed sections contain various
administrative amendments. One amendment is the proposal to allow
greater flexibility in the way 'eligible fuel use' is calculated.
Currently, section 10B of the DAFGS Act contains a formula for
calculating eligible fuel use. Judging by the discussion in
paragraph 3.2 of the Explanatory Memorandum, this formula is not
suitable for all circumstances. Proposed sections
13 and 14 provide for the repeal of
existing section 10B and its replacement with a new section 10B
that provides for regulations to be made that prescribe one or more
methods. The methods can differ depending on the kind of claim or
the circumstances in which the claim is made or both.

Proposed section 15 relates to
grants periods. The proposal repeals section 14 of the DAFGS Act
and substitutes a provision that allows the Commissioner of
Taxation to determine the grant period applying to applications for
advances, and to make a determination of the minimum amount in
respect of which a claim can be made or the minimum period that a
claim must cover or both.

The GST credit should not be confused with the 'input tax
credit' under which businesses are able to claim the GST paid on
fuel used for business purposes.

See Hon. P. Costello and Senator the Hon. N. Minchin, 'Fuel
taxation Inquiry', Treasurer's Press Release No. 50, 8 July 2001.
For an analysis of some of the issues in fuel taxation, see R.
Webb, 'Some Issues in Fuel Taxation, Department of the
Parliamentary Library, Current Issues Brief, No. 2, 2001-02 at
http://www.aph.gov.au/library/pubs/cib/2001-02/02cib02.htm

Richard Webb
23 October 2001
Bills Digest Service
Information and Research Services

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